When doing business, it is important to specify who is responsible for paying the transportation costs from which ship-from to which ship-to address, who bears the risk of losing the goods, who needs to insure them, what mode of transportation to use, who needs to create the applicable documents, and who will do customs clearance. Eleven Incoterms®, an abbreviation for international commercial terms, rules are used to clarify these responsibilities and support the business;
however, they do not include information about the ownership of the goods and other contractual agreements between the seller and the buyer. The use of Incoterms® rules is not obligatory, but it is recom- mended when the seller and the buyer agree this in the sales contract.
The available Incoterms® rules to use are based on the transportation modality. Incoterms® rules for any modality are EXW, FCA, CPT, CIP, DAT, DAP, and DDP. Incoterms® rules for sea freight and inland water- way are FAS, FOB, CFR, and CIF. Incoterms® rules is a trademark of the International Chamber of Commerce (ICC). Table 2.8 shows the exact description of the Incoterms® rules (Source: ICC website. The full text of the 2010 edition of the Incoterms® rules is available at http://store.iccwbo.org/). ICC provides documentation explaining the terms of delivery used in international business.
TABLE 2.8
Incoterms® Rules Description Modality Incoterms®
Rules Description
All modalities EXW “Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works, factory,
warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
FCA “Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
CPT “Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
CIP “Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
DAP “Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
DAT “Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay; warehouse; container yard; or road, rail, or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
(Continued)
Modality Incoterms®
Rules Description
DDP “Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import, and to carry out all customs formalities.
Sea freight and inland waterway
FAS “Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
FOB “Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
CFR “Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
CIF “Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. “The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
Source: http://store.iccwbo.org/
TABLE 2.8 (Continued) Incoterms® Rules Description